New assets still draw a crowd

NEW YORK - Although the market for esoteric asset classes has been under some stress this year - given the tighter credit environment - the sector still draws serious interest, as witnessed last week at Standard & Poor's New Assets Hot Topic Seminar, which drew as many as 75 market participants.

Said a banker during the cocktail reception that followed the afternoon session, "It's not about deal volume, it's about learning how to approach these assets, and people are always going to be interested in that."

S&P split its presentation into two parts: first discussing amortizing assets, such as franchise loans and insurance premium loans, then focusing on future flow assets, such as trademark and patent securitization - the latter session arguably more interesting (attendees said).

"New assets encompass so many different asset types, that you really need to approach it as a methodology," said Ellen Welscher, managing director and new assets group head at S&P. "So we tried to structure our presentation in a way that would give our audience the most value, something that they can take with them when they approach a new asset type."

As for trends, S&P noted a new interest in catastrophe bonds sourcing terrorism risk, as insurance companies look for ways to navigate the post-Sept. 11 terrain.

"It's not just terrorism risk," Welscher added. "What we're hearing in the market is that insurance premiums for all catastrophe risk may be on the rise, causing companies to find alternate sources of insurance. And one source may be the capital markets."

Other areas of growth include deals backed by loans to medical providers, small business loans, and deals backed by life settlements (see story page 10).

BioPharma...again

On the trademark/patent royalty front, S&P sees more potential securitizations from drug makers and others from industries where intellectual property can command large revenue streams.

BioPharma Royalty Trust was brought up as a model for future deals going forward. In BioPharma, Yale University securitized the revenue stream associated with D4T, brand name Zerit, for approximately $60 million in proceeds, managed by West LB. (Note: the university name was not disclosed by S&P).

Zerit is an HIV medication which Bristol-Myers Squibb Co. licensed from Yale in the late 1980s, paying the university a cash stream as a function of the overall revenue that the drug brings in annually.

Interestingly, earlier this year, Yale graduate law students, presumably unaware of the securitization, rallied to have Bristol-Myers/Yale lift the patent on the drug, so that generic drug makers could supply it more cheaply to the African market.

Even before the securitization, Yale had not been in control of the rights for several years, according to Bernhard Fischer, analyst at S&P, who rated the transaction.

Still, Bristol-Myers responded to various pressures and made the drug available below cost in Africa. Although the cash flowing into the BioPharma transaction is based on Zerit's revenue stream, any profit loss associated with Africa would have no impact.

"Our model entirely discounted the African market," Fischer said. BioPharma was stressed on the revenues coming from the U.S, North America, Japan and Western Europe only.

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